Settlements The settlements of redlining cases have included some combination of the following remedial actions that the involved financial institutions commit to undertake: • Operate in compliance with the FHA and the ECOA and not engage in redlining or any other acts or practices that discriminate on the basis of race, color, national origin or any other “prohibited basis” in violation of the FHA or ECOA. • Invest a prescribed amount of money in the areas allegedly redlined for special mortgage loans, usually at favorable terms and often in conjunction with some loan subsidy fund and/or grants to be applied toward down payments and closing costs. • Open branches/offices in the allegedly redlined area and maintain full-time mortgage lending personnel to serve the area. • Advertise bank services in the areas involved and target sales calls to real estate professionals serving those areas. • Continue to assess the credit needs and lending opportunities in majority-minority census tracts in the area involved on an ongoing basis. • Meet annually with community partners, government officials, real estate agents and brokers, among others, to understand the credit needs of the majority-minority communities in the target area. • Initiate/continue efforts to recruit minority individuals for employment in management and loan production positions. • Adopt/employ/maintain fair lending compliance management programs, policies and practices. • Develop and deliver fair-lending training on the financial institution’s obligations under ECOA, Regulation B and the FHA, as well as the settlement with the DOJ to relevant bank staff and officials. • Designate a qualified, full-time employee to direct community lending, particularly targeting the formerly redlined area. • Partner with one or more community-based or governmental organizations that provide the residents of majority-minority census tracts in the affected area with services related to credit, consumer financial education, homeownership and foreclosure prevention. • Submit regular reports to the government agencies involved in the settlement to memorialize its efforts to assess community needs and comply with the terms of the agreement. Avoiding Redlining Problems Generally, no financial institution would want to intentionally discriminate against members of its community through redlining or any other means. One way to avoid such situations is to survey the list of alleged wrongdoings above and ensure that your financial institution is not falling into one or more of these practices. Additional steps a financial institution can take to avoid redlining problems include the following: • Examine your institution’s Home Mortgage Disclosure Act (HMDA), if applicable, and other lending data. • Evaluate your geographic and racial lending patterns in light of your community demographics. • Evaluate your branch locations and other delivery mechanisms, marking and advertising programs, sales call programs and employee diversity. Lenders should look at these issues and make appropriate adjustments, if needed, as well as explore other ways to increase lending to all members of their community, including minority individuals. William J. Showalter, CRCM, is a senior consultant with Young & Associates Inc. (www.younginc.com), with over 35 years’ experience in compliance consulting, advising and assisting financial institutions on consumer compliance and compliance management issues. He authors and edits compliance publications and articles for Young & Associates. He can be reached at wshowalter@younginc.com. Continued from page 15 16 In Touch
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